At the beginning of 2025, Pronghorn Construction Company changed from the cost-recovery method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the cost- recovery method for tax purposes. For years prior to 2025, pretax income under the two methods was as follows: percentage-of-completion $114,200, and cost-recovery $78,200. The tax rate is 40%. Pronghorn has a profit-sharing plan, which pays all employees a bonus at year-end based on 2% of pretax income. Compute the indirect effect of Pronghorn's change in accounting principle that will be reported in the 2025 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers. Indirect effect $

At the beginning of 2025, Pronghorn Construction Company changed from the cost-recovery method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the cost- recovery method for tax purposes. For years prior to 2025, pretax income under the two methods was as follows: percentage-of-completion $114,200, and cost-recovery $78,200. The tax rate is 40%. Pronghorn has a profit-sharing plan, which pays all employees a bonus at year-end based on 2% of pretax income. Compute the indirect effect of Pronghorn's change in accounting principle that will be reported in the 2025 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers. Indirect effect $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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